The risks of the super-euro

The thorny question of major currencies’ exchange rates is still in the limelight: so much so that it was discussed at the ECOFIN and Eurogroup meetings, respectively held February 11 and 12, when also the G7 released a statement to this regard. Exchange rates are on the agenda of the G20 due to convene in Moscow in the coming weekend. At end of the ECOFIN meeting, Commission Vice President Olli Rehn said the EU believes that the exchange rates should be market-oriented and must comply with economic tenets in order to "create a more stable international monetary system". On the same line, the ECB president, Mario Draghi, informed of an audit in progress to determine whether the ‘super-euro’ (over 1.30 on the dollar) adversely affects price stability in the EU. Sir Europe broached the issue with Edoardo Ongaro, Professor of International Public Services Management at Northumbria University in Newcastle, UK, and Visiting Professor at Bocconi University in Milan. Professor, policy-makers and experts are concerned the euro is – "too strong"-, especially when compared with the currencies of European and world economic partners. Accordingly, if that were the case eurozone enterprises and its productive and commercial system would suffer a "competitive disadvantage". Do you share this view? "Unquestionably, over the past months the euro has been revalued against other currencies, notably the dollar, pound and yen. In all likelihood it is due to the currency policies adopted by the central banks of partner countries. Analysts also described a so-called ‘currency war’, the exact opposite of what is needed for global governance and crisis recovery. If this situation should linger on for long, eurozone countries would be facing a competitive disadvantage: local commodity prices would be higher, weighing on consumers in euro area countries. But the pros are: lower import costs, along with advantages for euro area buyers that purchase abroad. Considering all other factors inflation is bound to decrease in those countries adopting the euro". Do we risk currency depreciations such as those occurred in the 1970s-1990s, which favored national economies but eventually triggered long term backlashes, extinguishing competitiveness and innovation? "Indeed, that’s the risk. I think we’re witnessing the limitations caused by the lack of global governance, not only as relates to international monetary policy. In my view, currency depreciation will bring only short-lived benefits". The ECB’s primary task is to monitor prices and inflation. In the mandate you were assigned by euro area countries could the ECB determine the implementation of true political – thus also monetary – economic policy? "It should be said that in the strict sense of the term no central bank can determine economic policies, which is the role of national governments. However, in other countries monetary policies are often viewed within the framework of economic and fiscal policies to the benefit of the dynamics of the economy. In the case of the European Central Bank, characterized by its role as the central institute of a ‘federal’ currency, we face two sets of problems". Which are…?"First: there is nothing like a ‘central’ economic government, thus Frankfurt’s central Bank doesn’t have just one interlocutor – despite its institutional independence. Rather, it relates to 17 separate governments. Second: the ECB mandate is more restricted compared to that of other central banks. Its primary objective is price stability, and not, for example, economic growth. But a dim light at the end of the tunnel is being perceived… The ECB has shown intelligence and flexibility in managing the euro, despite the limitations of its mandate and the political oppositions of EU bodies, unwilling to give up their shares of power. In spite of that, there is increasing awareness that the interdependence of euro area economies and peoples will require interconnected economic policies, leading to the achievement – after a long process – of a single economic policy, adapted to eurozone countries at internal level. That scenario could bring advantages to the economies of some countries sharing the same countries to the detriment of others on the short and medium term, but not on the long run. Within the euro area a zero-sum game (whereby for one who gains there is a counterpart who loses) will have to be replaced by a win-win situation".